Banking

Banking
3Q13A: Decelerating top line growth. Bank 3Q13A earnings showed growth of 15% YoY
and 1% QoQ, generally in line with our forecast (+18% YoY, +4% QoQ). Overall 3Q13 results
reflected: 1) a QoQ slowdown in loan growth in all segments, especially auto loans, to a
moderate 1.7% vs. 3.4% in 2Q13, in line with slowing domestic consumption and investment,
2) a slight improvement in NIM, which was a positive surprise, 3) QoQ slip in non-NII, mainly
fees related to loans and the capital market, 4) QoQ increase in opex without last quarter’s
reversal of provisions covering possible losses with the TAMC, and 4) easing provisioning with
lower countercyclical buffer provisions.
Slower rise in auto NPLs. TCAP, TISCO, and KKP saw a slower rise in NPLs from auto loans,
particularly those on used cars. This may indicate that the deterioration of used car loans is
reaching bottom and lines up with the view of industry experts that used car prices will
recover at the end of this year or early next when the oversupply of new cars eases. The
negative surprise was at BAY, which only just now showed a material NPL inflow from used
car loans, slower than other banks focused on auto loans. This is because unlike peers, the
majority of BAY’s used car loans are for car refinancing, which means loans will turn sour
later. We believe this indicates the bad loans arising from used car loans have reached nadir.
Slight cut in loan growth forecast. The sector’s 9M13 loan growth was 7.4%, behind our
original forecast of 11%. We thus reduce our loan growth forecast by 1 percentage point for
both 2013F and 2014F to 10% and 9%, respectively. We expect a QoQ recovery in loan growth
in 4Q13 on the back of seasonality of working capital loans and a recovery in exports.
But offset by a positive surprise on NIM for large banks. At the same time, there was a
positive surprise on NIM at large banks, including SCB and KTB. It appears that banks are
increasing their emphasis on enhancing loan yield to cope with rising competition for
deposits and slowing loan growth.
Shifting to investment-led loan growth. The passage of the Bt2trn infrastructure bill will
be key to restoration of private sector confidence and bring back a long-absent capex cycle.
Meanwhile, high household debt has ended consumption-driven loan growth. Though we
expect a delay in public investment - including the Bt2trn infrastructure plan - we expect loan
growth to shift to an investment-led cycle in the next few years from the consumption-led
cycle seen for the past several years.
Top picks – KTB and BBL. We are more optimistic towards corporate and SME loan growth
than consumer loan growth, particularly auto loans, and are also more concerned about the
asset quality of consumer loans than business given the high level of household debt at 80%
of GDP. BBL and KTB remain our top picks as investment cycle plays.
Valuation summary